Archive for November, 2010
Nicolas Véron assesses the charge that Europe’s plan to make bondholders pay in future bailouts has itself produced turmoil in European markets.
Edited transcript, recorded November 15, 2010. © Peterson Institute for International Economics.
Steve Weisman: With European bond markets and financial markets again in disarray, it’s great to have Nicolas Véron, a visiting fellow at the Peterson Institute for International Economics and a senior fellow at Bruegel, our sister institution, to discuss this volatility. This is Steve Weisman at the Peterson Institute. Welcome Nicolas.
More than a dozen countries, including Brazil, China, India, Japan, and Korea, have been intervening in the foreign exchange market to prevent their currencies from appreciating. There are fears that the second dose of quantitative easing in the United States (dubbed QE2) may worsen currency appreciation. These developments raise the prospect of a currency war, which the Group of Twenty (G-20) fears is gathering steam. Because many countries are simultaneously seeking to improve their balance of payments position, many are seeking a more competitive exchange rate. The laws of mathematics mean that some must be disappointed: A weaker exchange rate of one country implies a stronger rate of some other country or countries.
As pressure mounts on China to let the value of its currency appreciate, a debate has occurred among some economists over the potential effect of such a revaluation on the US current account deficit—or on the number of jobs in the United States. In recent congressional hearings, C. Fred Bergsten (2010), director of the Peterson Institute for International Economies, testified that a correction of China’s exchange rate undervaluation would produce approximately 500,000 American jobs. The purpose of this note is to set forth calculations that provided part of the basis for this estimate, in particular, and to further clarify estimations of the impact of the exchange rate on trade and jobs more generally.